Cardinal Company is considering a project that would require a $2,500,000 invest

Question

Cardinal Company is considering a project that would require a $2,500,000 investment in equipment with a useful life of five years. At the end of five years, the project would terminate and the equipment would be sold for its salvage value of $200,000. The company's discount rate is 12%. The project would provide net operating income each year as follows: Sales Variable expenses S 2,853,000 1,200,000 Contribution margin Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs Depreciation 1,653,000 $790,000 460,000 Total fixed expenses ,250,000 Net operating income s 403,000

Explanation / Answer

Solution 13:

Solution 6:

Computation of Actual Annual Cash Flows Particulars Amount Sales $2,853,000.00 Variable Expenses (50%) $1,426,500.00 Contribution margin $1,426,500.00 Fixed out of pocket cost $790,000.00 Annual cash inflows $636,500.00

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